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Apple apps, phone contracts rising as loonie weakens

The cost of a 68-cent dollar is spreading from strawberries to smartphones, as Apple and telecom companies hike prices to shore up their bottom lines.

Apple is expected to hike prices at its Canadian app store in response to the falling value of the loonie. (Aly Song / REUTERS FILE PHOTO)

By Sunny FreemanBusiness Reporter

Tues., Jan. 19, 2016

The cost of a weak loonie is spreading from strawberries to smartphones as Apple and the Big Three telecom companies hike prices to blunt the impact on their bottom lines.

Consumers are already paying more for tangible goods, such as produce and international flights, due to a rapid decline in the Canadian dollar, which now hovers at a 13-year low below 69 cents (U.S.) But the weak dollar also hurts sellers of software-based products and service providers.

Apple’s minimum price for an app in its Canadian App Store will rise 17 per cent this week from $1.19 to $1.39, while apps priced at $50 will rise to $69.99. The tech giant sent notices to developers on Monday telling them that pricing models are going up due to currency fluctuations.

The changes will also affect New Zealand, Israel, Mexico, Russia, Singapore and South Africa, which will see prices rise by a smaller margin, according to the website The Next Web, which obtained a copy of the memo.

Many countries are seeing their currencies fall against the greenback. The Canadian dollar has been especially hard hit by the impact of a global downturn in oil prices, which have fallen below $30 (U.S) a barrel.

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Apple has often used currency fluctuations as a rationale for raising App Store prices, though it’s harder for the tech company to explain than for sellers of physical goods, said independent tech analyst Carmi Levy.

The U.S.-based multinational’s product prices are converted into local currencies whenever it does business outside its borders. Apple shareholders are not going to accept the company eating the impact of a low Canadian dollar on customers, he said.

“Where Apple will run into headwinds is the significant size of this particular price increase,” he said. “It adds insult to injury to Canadians dealing with more expensive necessities like food that even a digital escape from reality will now cost quite a bit more.”

Some Canadians will also see their monthly cellphone bills rise.

Canada’s biggest telecom companies have raised prices on plans for new wireless customers to tamp down the potential erosion of profitability.

Bell Mobility announced a $5 increase on some plans for new subscribers last week, saying the hike reflects the increased costs of building its network due to the low Canadian dollar.

“The massive and ongoing investment required to build world-class infrastructure is coming at a significantly higher cost now due to the weak dollar, since most network equipment suppliers and smartphone manufacturers are international companies that price in U.S. dollars,” spokesman Jason Laszlo said in a email.

Telus has also implemented rate plan increase of $5 a month for new contracts and renewals.

“The modest wireless rate plan increase reflects increasing costs for network components resulting from a weaker Canadian dollar, as well as the annual multi-billion-dollar investments required to keep up with the growing demand for wireless data,” said spokeswoman Emily Hamer.

Rogers is also raising prices “to reflect ongoing network and service investments along with current market conditions impacting our industry,” said spokesman Aaron Lazarus, though he didn’t mention the dollar specifically.

The changes vary in price depending on the plan and other options and do not affect existing customer contracts, he said.

The major capital expenditures for wireless providers are charged in U.S dollars, said Iain Grant, president of the telecom analyst firm, the Seaboard Group. This includes roaming charges which are billed to the carriers in U.S. dollars.

While network towers are built in Canada, the switching, radio gear, billing and operations systems are all imported upfront costs. Meanwhile, handsets are imported monthly or bimonthly to meet demand and an Apple iPhone costs about 30 per cent more than it did a year ago, he said.

He noted that those costs should have been “known knowns” and a prudent telecom would have offset much of the foreign currency fluctuations with hedging policies.

The impact of the strong U.S. dollar and network investments are the obvious reasons for the price hikes, said Scotia Capital analyst Jeff Fan.

But the Big Three are also raising costs due to other reasons, such as offsetting the impact of deep discounts on handsets in late 2015, a highly competitive quarter.

He also noted that prices are not going up in Quebec, Manitoba or Saskatchewan, provinces that have four major players.

“All the fourth operators in these provinces also operate upgraded and competitive networks vis-à-vis the Big Three,” he wrote in a note Monday.

“We believe the Big Three raised prices in Ontario, Alberta, or British Columbia because fourth operator Wind does not currently operate a fully competitive network and hence is not a perfect substitute that could take material share from the Big Three as a result of their price actions.”

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